Dye & Durham adds fee for property searches, buys Telus financial unit

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Legal technology provider Dye & Durham Ltd. has announced a $500-million deal to acquire Telus’s payment processing business in the same week it will also introduce a new fee for its users who do property searches in Ontario.

Toronto-based D&D will buy Telus Communications Inc.’s payment solutions unit, which processes 140 million bill and tax payments annually, with an aggregate value of $1.3-trillion, for financial institutions and government agencies. D&D calls it Canada’s largest non-bank payment platform.

D&D chief executive Matt Proud said in a news release that the deal fits the company’s “acquire and integrate” playbook.

D&D has a strategy of buying legal software companies that have few competitors and high costs for customers to switch providers, and then hiking prices, which law firms who use the software then often pass on to their clients.

The company’s share price has soared by more than 525 per cent since its initial public offering on the Toronto Stock Exchange in July, 2020. D&D shares rose more than 9 per cent on Monday, closing at $42.25.

The Telus acquisition is the first since D&D’s board rejected an offer by the company’s management team to take it private. In October, the board turned down the group’s offer of $50.50 a share and opted to stay on the public markets. D&D’s board said it also gave Mr. Proud more than 6.8 million stock options as an incentive to “further align the interest of the [CEO] with that of shareholders.”

As part of the Telus deal, D&D will acquire software that connects lenders with law firms when a mortgage is being originated or discharged.

BMO Capital Markets analyst Thanos Moschopoulos said in a research note that about half of the revenues from the Telus payments business come from real estate transactions and mortgage discharges. The unit partners with lawyers, notaries and financial institutions to process a variety of payments.

“We believe DND’s rationale in acquiring the business is to control a greater portion of the end-to-end property conveyancing process,” he wrote, referring to the business of transferring property ownership (DND is the company’s stock trading symbol). Telus’s software is currently only used in Quebec to process home sales, but D&D could expand to other jurisdictions, Mr. Moschopoulos said.

“We presume that DND might look to leverage its unique market position … with respect to driving electronic payments adoption for the settlement of real estate transactions in other provinces,” he wrote.

On Saturday, D&D will add a $6.50 usage charge to the $129 fee it currently costs to process an Ontario real estate transaction on its conveyancing platform Unity. The charge is for performing a title search on Teranet, Ontario’s property registry.

D&D told the Globe that the usage charge is meant to cover the cost of Teranet’s title searches, which increased from $0.25 to $1 on Monday. D&D said it used to assume the costs of title searches in its $129 fee, but will now charge a flat fee of $6.50 to absorb the cost of 6.5 searches, which the company says is the average number of searches done for a real estate transaction. The company said it derived that average from its own user data.

In January, D&D raised the title search fee by 400 per cent from $25, which led to an outcry from legal professionals in Ontario who handle real estate deals. That fee is being passed on to home buyers.

The price hike came after D&D acquired DoProcess, Canada’s largest provider of real estate practice management software, from Teranet in December, 2020.

Mr. Moschopoulos told The Globe and Mail that Unity handles “perhaps upwards of” 700,000 transactions a year in Ontario, meaning the increased charge would add approximately $4.55-million to D&D’s annual revenue.

Legal professionals across the country have criticized D&D for massive price raises, which are often passed on to clients. In November, conveyancers in British Columbia expressed anger about price hikes as high as 563 per cent. Moderators of two Facebook groups for B.C. real estate professionals told The Globe that 50 of their members had complained to the federal Competition Bureau about the price raise. The company has also hiked prices on software used in Alberta, Manitoba and Saskatchewan.

D&D is coming off of a strong first quarter for fiscal 2022 (which ended Sept. 30), reporting revenues of $112.6-million, up 414 per cent year-over-year. Adjusted operating earnings increased 398 per cent to $62.4-million.

- With files from Sean Silcoff

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